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Chea Romine
Chea Romine, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 197
Experience:  CPA, Managing Partner of medium sized CPA firm specializing in all areas of tax and accounting.
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I bought a boat in 2007 as a fixer upper. It was meant strictly

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I bought a boat in 2007 as a fixer upper. It was meant strictly as a fix and flip. I invested considerable amount in repairs and put it on market in 2008. Very bad market conditions. Didn't sell that summer and recession hit that fall. Put it out to bareboat charter next season. More upgrades and repairs prior to that. Finally sold it in early 2010. Because of the down market conditions took quite a loss on it.
It's similar to if I bought a house to flip, then had to rent it out a while until conditions improved.

So, how do I write off the losses? I prefer to book all the losses on my 2010 return...I filed an extension.
Submitted: 2 years ago.
Category: Tax
Expert:  Chea Romine replied 2 years ago.

Chea Romine : If the boat has sleeping quarters you can report it on your schedule E just like a home rental. The other option is to file it on your schedule C as a business. I would recommend you filing the schedule C as I thin it is less likely to draw an IRS attention then the schedule E would. You would show all costs to purchase and fix the boat as capital costs and then show the sale creating a loss on the asset. Then you will show the rental income and and expenses to rent the boat on the schedule C and that will create either a gain or loss. Please ask any follow up if you need anything clarified.
Customer:

Schedule C is the way I'm handling it now. It seems to fall under the category of Inventory carried forward. But I didn't book it as inventory in previous years. I did file a Sched C on it for 2009, though. I only accounted for rental income vs. that year's expenses, such as upgrades for the rental market, repairs, maintenance and storage.

Customer:

What I'm proposing to do is show it as inventory for the first time in 2010, with an explanation as to why I didn't in previous years. That is, I wasn't aware I should do that. Then I'll tally up the original purchase price, the repairs put into it from 2008-2010, minus the repairs and maintenance already accounted for on the 2009 Schd C. Then I'll show the 2010 sale price as Income. And write off the net loss against my net income from my other more lucrative business.

Customer:

Sound like an acceptable approach?

Chea Romine : I think you are he right track. Yes it should have been shown just like inventory in the past. Although how you have done it in the past was not correct sending any type of explanation without going back and amending the prior returns is going to cause you a lot more headache than will help. Just file as you stating without any explanation. If they question it then you provide the explanation. The botXXXXX XXXXXne of taxes will be the same you just in essence took some of the expenses sooner than you were allowed.
Customer:

OK, thanks for the advice. I'll nix the explanation.

Chea Romine, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 197
Experience: CPA, Managing Partner of medium sized CPA firm specializing in all areas of tax and accounting.
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